| Business Contract Hire
For VAT registered companies that want minimum outlay and maximum cost control.
Contract Hire is a vehicle-leasing contract. The hirer benefits by paying a single fixed rental each month, this includes Road Fund Licence. If required, fixed monthly payments can include all servicing and maintenance including tyres.
Rental periods typically vary between 12 and 48 months, there are no large initial payments to be made, deposits are usually equivalent to 1 or 3 months rental.
VAT is payable on rentals but is partially or totally reclaimable by VAT registered companies depending on the use of the vehicle.
At the end of the contract the vehicle is returned to the funder.
The major benefits of contract hire are:
- Off balance sheet funding
As they are owned by the funder, vehicles do not appear on the clients company's balance sheet. The removal of capital assets from the balance sheet can improve the client companies gearing (borrowing to asset ratio
- Fixed cost
A fixed monthly payment is charged over the life of the contract and as a consequence budgeting is made much easier.
- VAT Benefits
Contract hire has significant VAT benefits in that the funder can claim back the VAT on the purchase price of the new Car. These benefits are passed onto the client. As a user the client can then claim back 100% of the VAT on the servicing element of the rental cost and 50% of the finance cost.
- Financial Risks
The funder takes all the risks involved in everything from the resale value of the vehicle, the maintenance of the vehicle and any change in interest rates.
- Administration Burden
As the funder is supplying, the maintenance and is disposing of the vehicles, the clients administration is kept to a minimum.
- Outright Purchase of an existing traditionally funded fleet.
Known as "Purchase and Lease Back", the existing fleet is purchased at a price that is agreed and is immediately leased back to the client using an agreed funding method. Despite the use of the word "lease" and in order to take advantage of the financial and administrative benefits of Contract Hire, Contract Hire is normally the preferred funding method.
- Significant Cash Flow advantages can result from a "Purchase and Lease Back" transaction
Business Contract Purchase
For companies with high value cars who like the option to purchase without depreciation risks.
This method of funding is ideal for companies who cannot fully reclaim VAT and for the financing of more expensive cars.
The major difference between Contract Purchase and Contract Hire is that there is an opportunity for the client to purchase the vehicle at the end of the contract period. As an alternative the vehicle, at the end of the contract can be returned to the funder.
If the client is restricted in the amount of VAT it is able to reclaim, or if they operate expensive cars (typically in excess of ÂŁ25,000), a taxation advantage may be achieved by retaining ownership of the vehicles.
Contract Purchase offers all the operational, managerial and administrative benefits of Contract Hire, together with the tax-efficient benefits of ownership, such as the ability to claim capital allowances.
The client enters into a finance agreement for the vehicle for a pre-determined period at a fixed monthly rate.
They have the option to buy the vehicle at the end of the contract by making a final 'balloon' payment, agreed at the start of the contract. Alternatively the vehicle can be returned at the end of the contract but with nothing further to pay even if the funder sells the vehicle for less than the balloon payment.
The single, fixed monthly payment takes into account the cost of the vehicle, its rate of depreciation, the length of the contract, mileage and any additional services that may be required.
Lease Purchase
For non VAT registered Companies or individuals who want eventual ownership of the vehicle.
It is purely a finance package. There is no option to return the vehicle at the end of the agreement. As the funder cannot claim the VAT on the purchase of the vehicle the monthly payments payable by the customer are not subject to VAT. The vehicle is registered in the name of the customer, and where this is a company, the vehicle will appear on the balance sheet, and Writing Down Allowances can be claimed.
Lease Purchase is similar to Hire Purchase in many ways, except with Lease Purchase the monthly payments are much lower because a lump sum final payment (based on the estimated resale value of the vehicle and its end of term mileage) is deferred until the end of the agreement.
There is the security of fixed monthly payments but for considerably less.
Personal Contract Purchase (PCP)
Similar to Business Contract Purchase but for the Individual.
The major benefit of Contract Purchase and is that there is an opportunity for the client to purchase the vehicle at the end of the contract period. As an alternative the vehicle, at the end of the contract, can be returned to the funder.
The client enters into a finance agreement for the vehicle for a pre-determined period at a fixed monthly rate.
They have the option to buy the vehicle at the end of the contract by making a final 'balloon' payment, agreed at the start of the contract. Alternatively the vehicle can be returned at the end of the contract but with nothing further to pay even if the funder sells the vehicle for less than the balloon payment.
The single, fixed monthly payment takes into account the cost of the vehicle, its rate of depreciation, the length of the contract, mileage and any additional services that may be required.
This is an agreement that allows a vehicle to be hired for a fixed period without the option of ownership. Rentals cover both the initial cost of the vehicle and the finance charges.
At the end of the contract, the proceeds from the sale of the vehicle, less a small administrative fee, are returned to the hirer, in effect, a refund on a proportion of the rental payment.
Payment of a proportion of the cost of the vehicle can be deferred by incorporating a final payment in the rental. This should be less than the vehicle’s anticipated residual value at the end of the agreement and can be paid when the contract is completed.
Finance Lease
For VAT registered companies who wish to handle their own administration and maintain their fleet as a balance sheet asset
This is an agreement that allows a vehicle to be hired for a fixed period without the option of ownership. Rentals cover both the initial cost of the vehicle and the finance charges.
At the end of the contract, the proceeds from the sale of the vehicle, less a small administrative fee, are returned to the hirer, in effect, a refund on a proportion of the rental payment. VAT is payable on the rentals
Payment of a proportion of the cost of the vehicle can be deferred by incorporating a final payment in the rental. This should be less than the vehicle’s anticipated residual value at the end of the agreement and can be paid when the contract is completed.
Hire Purchase HP
This is the simplest way to acquire a vehicle.
You’ll be asked to pay a deposit, the amount of which is negotiable. The remaining cost plus interest and charges are then repaid by regular monthly repayments. A fixed repayment means that you’ll always know what your monthly costs will be as these remain the same throughout the period.
Using this method means you are working towards owning your vehicle over a fixed period of time. Because there is no residual value or balloon payment at the end of the period you have the benefit of the full sales proceeds when you come to dispose of your vehicle. However this does of course mean that the monthly amounts are likely to be significantly higher than when using a funding method that incorporates a final balloon payment.
Because of its simplicity Hawkriver Ltd can arrange Hire Purchase for vehicles or indeed any portable asset not part of the fabric of a building. Hire Purchase is particularly useful for the funding of assets that have little or no disposable value at the end of the finance period. Please telephone for details.
Contract Hire
This is a good choice if you want to remove assets from the balance sheet, eliminate financial loss when disposing of vehicles and enjoy the convenience of a full maintenance service. It also allows you to reclaim 100% of the VAT on servicing, and 50% of the VAT on the financial rental cost.
How Does It Work?
Once you've agreed on the contract term, annual mileage, maintenance options and monthly rental, we use our fleet purchasing power to acquire your chosen vehicle for you and deliver it to your specified location. At the end of the contract, provided the contracted mileage has not been exceeded and the vehicle is undamaged, we'll collect it and you will have no further involvement.
What Else Can Be Included?
- Routine servicing, mechanical repairs, batteries, exhausts and tyres
- Replacement vehicle in the event of an accident or breakdown
- Full membership of a motoring emergency programme, including Home Start, Road Side Assistance, Relay, Relay Plus and European Cover
- Individual or fleet insurance cover
- Full range of competitive insurance products
The Benefits
- Costs paid from income not capital (no capital tied up in a depreciating asset)
- Fixed monthly cost allows accurate budgeting/cash flow forecasts
- Leasing company can reclaim all VAT on vehicle purchase price to give you much lower monthly payments
- Minimal initial expenditure, typically three months in advance
- Rentals allowable against taxable profits
- For new cars and VAT qualifying cars, assuming some personal use, current legislation allows reclaim of 50% of VAT on your monthly rental against your VAT liability. The other 50% can be offset against taxable profits
- For pool cars and commercial vehicles, current legislation allows reclaim of 100% VAT and 100% offset against taxable profits
- Rentals allowable against taxable profits
- Costs are off your balance sheet, improving gearing ratios and return on assets
Disadvantages
- Contract Hire is a fixed contract which runs over a specific period. It can therefore carry a penalty if terminated early
Contract Purchase
This is a popular choice for companies wishing to acquire high value vehicles and have the option to purchase with no depreciation risks. In effect it combines Lease Purchase with the service options of Contract Hire.
It has been designed to benefit customers who cannot register for VAT or who are partially VAT exempt. Contract Purchase is very popular with companies requiring executive cars with an anticipated low annual mileage.
How Does It Work?
Using our fleet purchasing power, we source the vehicle(s) of your choice and deliver free of charge. You will previously have agreed a contract term, annual mileage, service options, guaranteed option-to-purchase price, and the monthly rental. On termination of the contract you choose either to return the vehicle with no further commitment, or to pay the agreed option-to-purchase price.
The Benefits
- Minimum initial expenditure (typically three months in advance)
- Fixed monthly rental allows accurate budgeting and cash flow forecasts
- No capital tied up in a depreciating asset
- If you choose not to purchase at the end of your contract, any depreciation is not your responsibility
- Constant mobility with no purchasing or disposal hassles
- VAT payable on service options only
- Vehicle shows as a balance sheet asset
- Capital allowances claimable against taxable profits
Disadvantages
- Cannot be shown off balance sheet
Personal Contract Hire
Personal Contract Hire can be tailored to suit an individual's personal circumstance. It offers the security and piece of mind of predictable and regular monthly payments which cover all the major costs normally associated with running a car. A large initial capital outlay is not required, and worries over maintenance costs and end of contract vehicle value are negated. There are negotiable mileage terms and initial line rental requirements, with regular equal payments taken by direct debit until the end of the contract.
At the end of the contract period, if the car is in good condition and within agreed mileage, the car is simply handed back to us, leaving the individual free to take outan agreement on their next car. The only requirements are that they arrange their own fully comprehensive insurance, pay for their own fuel and keep the vehicle topped up with oil and in s good condition.
Personal Contract Hire is available with or without maintenance and VAT is payable on the rental.
How Does It Work?
Using our fleet purchasing power, we source the vehicle of your choice and deliver free of charge. You will have decided previously on the deposit you wish to pay, and the length of the contract. We then fix an agreed future value which is guaranteed, subject to mileage and good condition, and your monthly payment is calculated accordingly. It's very flexible and we think the cost options will pleasantly surprise you. At the end of the contract you simply choose a new vehicle (no trade-in hassles) or pay the agreed final payment to own the car outright.
The Benefits
- Significant tax advantages
- Choose any make. We'll source and deliver free of charge
- Enjoy a new car every two or three years
- Low deposit
- Low fixed monthly payment
- Contract length and mileage tailored to your specific requirements
- Maintenance and breakdown options available
- GAP insurance and early termination insurance available
- The chance to own the car at the end of your contract
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